Investment banks need to rethink profit strategies

Boston Consulting Group BCG forecasts that return-on-equity in the investment banking industry could fall to as low as 5% and says overall compensation structures need to be rethought as part of a cost reduction.

In a report issued on Wednesday, BCG highlights the now well-documented constraints within which investment banks are operating a weakening business outlook strict regulations high capital costs and reduced leverage. The Massachusetts-based consulting firm goes on to question whether investment banks can emerge from the crisis as viable universal banks, suggesting most have not yet fully examined this issue as they have been focused on short-term survival.

Had the crisis been less acute, investment banks would have restructured themselves, shed unproductive...